I certainly don't endorse the idea of wholesale forgiveness of debt, for either responsible debtors, or wild speculators, because I think it would ignite another bubble in the housing market. But the statistics about underwater housing are illuminating about the problems that are still present in the market, and the inability of both market effort and government efforts to stimulate much in the way of recovery. They also help explain some of the traction behind the Occupy movement.

The article states that nearly 11 million out of 55 million mortgages are underwater. I'm not sure whether that includes second mortgages, which are even more tenuous in value. Neither the financial sector nor the Obama administration's regulatory efforts have faced the amount of bad debt on the books, much less tried to develop solutions. At an average value of $100,000, that is about a trillion in bad debts left on the books. Not much of it marked to market I would bet.

Now as to the anger at Wall Street. Look at the factors. First, the bail out in the first place--with massive struggles to even extend unemployment. Second, the bonuses--after screwing it up they still took home bonuses. Third, the realization among homeowners that their houses were no longer cushions against bad times and for retirement, but albatrosses around their necks. Fourth, the banks began repossessing homes--but were so short staffed and ethically challenged that they did it wrong--the point of illegality--about half the time.

Now add in the debt load of college students unable to find work, the high salaries and fee increases they see in University administrators, and the growing number of newly homeless and unemployed. You don't have to have a very large number of these angry folks show up to have a pretty impressive number of demonstrators. And since many of them have gotten tired of looking for a job where they can't find one, they really don't have anything more productive to do. (Excluding, of course, those fine capitalists like bard's daughter who extract a fine living betting on failures.)

To cap it off, you have the utter dishonesty and incompetence of the banks in managing their portfolios. The sensible thing to do is for everyone to get a haircut. It is better to have someone in a house paying rent, or better yet in the process of buying the house at a lower price, than to oust the owner and put the house/apartment unit on a flooded market. Talked to a real estate agent last week about a deal that fell through. An underwater owner of an apartment was trying to sell the apartment for $1 million, but couldn't get approval from the bank that held the mortgage. Rather than work out a deal, the bank took the property back, and then sold it to the buyer for $800,000 to clear it off their books. Great deal for the buyer, who had been willing to pay 25% more, bad for the bank and the original owner, and bad for the market. These are the guys who get bonuses?

This isn't going away soon. Even if Obama got it, and replaced his economic folks with some who weren't so beholden to Wall Street, he couldn't get anything through a Senate that fillibustered 3 economic recovery bills in the last three weeks.

In direct response to your title question:
BECAUSE KEYNESIAN ECONOMICS IS PROVEN BS!

Yet again: on what planet does it make ANY sense to take money from successful people, skim off a large portion to bureaucrats, and give what's left to unsuccessful people? What part of the term "negative feedback" escapes Keynes' supporters?

I told you lefties a couple of years ago that a nationally known business expert, a corporate broker, told me his client CEOs said their companies would grind to a halt if immigrant labor dried up. You laughed derisively (this was before I banned you from my home).

Regarding the trillion $ in student debt, you might be amused that one of the OWS had a degree in puppeteering, but couldn't find a job and was protesting that fact (with puppets)...

How does this relate? There are many students who are unqualified to go to college, and instead should go to technical trade schools, or just enter the workforce. Instead they borrow and party toward useless degrees.

On the other hand, if the fishmonger had raised his pay to $11-12 per hour, he might have found a line of eager beavers. If some of those puppeteers had been told by their govt and parents to go out and work, this problem might be solved.

CLEARLY THERE SHOULD BE A NATIONAL STANDARD OF ENFORCEMENT SO THAT ALL EMPLOYERS ARE PLAYING ON A LEVEL PLAYING FIELD. This poor employer has to compete with other states that ignore the illegal problems. So....it should be one way or the other way. But the rule of law no longer is practiced in this country, hence, chaos.

The "banks are evil" attitude ignores an aspect of a large part of the working class. Those who have worked and saved outside of government jobs and large businesses. Some of us rely on the sustainability of the stock and bond markets, and yes, large banks, to maintain our self-funded pensions. We don't have the luxury of a government pension; which would continue regardless of the mayhem that may occur if wide scale debt forgiveness occurs.

It does make sense to keep folks in their homes. So why not extend the term of the loans to reduce the monthly payment instead? The average life expectancy has increased...why not the term of the loan to pay for the house?

Why no recovery? Well, IMO, it may take a generation to recover from our wild spending spree of the last twenty years. We have overspent on defense. We have promised public pensions we cannot afford. We refuse to acknowledge the dysfunctional delivery of health care, let alone fix it. We continue to finance longer and longer social security and medicare benefits compared to working life. And, we won't pay for it!

We have become spoiled and it has caught up with us...and Europe. It is going to take a combination of increased taxes, spending cuts, banking reform and time to fix this.

Last edited by coboardhead on Thu Nov 17, 2011 12:30 am; edited 1 time in total

Commenting specifically on the article, if we force banks to reduce principal, they will go bankrupt. U.S. debt just went over $15 trilion today. This govt has been spiraling out of control for years. They are desperately trying to do the only thing they can. Inflate. It's not working, because no one is buying that it will work.

It's no secret here that I didn't want to bail out the banks 3 years ago. This could go on for 10 more years.

I was really hoping Cain would be the outsider who'd change the system. Clearly he's incapable. Newt and Mitt? Obama? WTF...can't America come up with something better? Principle reduction? How is that fair to people who where frugal savers or to the pensioners who own bank stocks?

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